Judge Elaine Lu, Case 22STCV10553 2022-10-19 Tentative Ruling

On March 28, 2022, plaintiffs Violeta Rojas (“Rojas”) and Brenda Escobedo (“Escobedo”) (jointly “Plaintiffs”) filed the instant Private Attorney General Act (“PAGA”) action against defendant Lab 3 LLC (“Defendant”). The complaint asserts a single cause of action for penalties under PAGA.

On September 14, 2022, Defendant filed the instant motion to compel arbitration. On October 6, 2022, Plaintiffs filed an opposition. No reply has been filed.

California law incorporates many of the basic policy objectives contained in the Federal Arbitration Act, including a presumption in favor of arbitrability. (See Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 971-72.) Under Code of Civil Procedure section 1281, a “written agreement to submit to arbitration an existing controversy or a controversy thereafter arising is valid, enforceable and irrevocable, save upon such grounds as exist for the revocation of any contract.”

“On petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy and that a party thereto refuses to arbitrate such controversy, the court shall order the petitioner and the respondent to arbitrate the controversy if it determines that an agreement to arbitrate the controversy exists, unless it determines that:

(c) A party to the arbitration agreement is also a party to a pending court action or special proceeding with a third party, arising out of the same transaction or series of related transactions and there is a possibility of conflicting rulings on a common issue of law or fact. . . .” (CCP §1281.2.)

The right to arbitration depends upon contract; a petition to compel arbitration is simply a suit in equity seeking specific performance of that contract. (Marcus & Millichap Real Estate Inv. Brokerage Co. v. Hock Inv. Co. (1998) 68 Cal.App.4th 83, 88.) When presented with a petition to compel arbitration, the trial court's first task is to determine whether the parties have in fact agreed to arbitrate the dispute. (Id.)

“Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394 explained: ‘[W]hen a petition to compel arbitration is filed and accompanied by prima facie evidence of a written agreement to arbitrate the controversy, the court itself must determine whether the agreement exists and, if any defense to its enforcement is raised, whether it is enforceable. Because the existence of the agreement is a statutory prerequisite to granting the petition, the petitioner bears the burden of proving its existence by a preponderance of the evidence. If the party opposing the petition raises a defense to enforcement—either fraud in the execution voiding the agreement, or a statutory defense of waiver or revocation (see §1281.2(a), (b))—that party bears the burden of producing evidence of, and proving by a preponderance of the evidence, any fact necessary to the defense.’ (Rosenthal, supra, at 413.) According to Rosenthal, facts relevant to enforcement of the arbitration agreement must be determined ‘in the manner . . . provided by law for the . . . hearing of motions.’ (Rosenthal, supra, at 413, quoting §1290.2.) This ‘ordinarily mean[s] the facts are to be proven by affidavit or declaration and documentary evidence, with oral testimony taken only in the court’s discretion.’ (Rosenthal, supra, at 413–414; . . .).” (Hotels Nevada v. L.A. Pacific Center, Inc. (2006) 144 Cal.App.4th 754, 761-62.)

Under both the Federal Arbitration Act and California law, arbitration agreements are valid, irrevocable, and enforceable, except on such grounds that exist at law or equity for voiding a contract. (Winter v. Window Fashions Professions, Inc. (2008) 166 Cal.App.4th 943, 947.) In ruling on a motion to compel arbitration, the court must first determine whether the parties actually agreed to arbitrate the dispute, and general principles of California contract law help guide the court in making this determination. (Mendez v. Mid-Wilshire Health Care Center (2013) 220 Cal.App.4th 534, 541.) “With respect to the moving party’s burden to provide evidence of the existence of an agreement to arbitrate, it is generally sufficient for that party to present a copy of the contract to the court.” (Baker v. Italian Maple Holdings, LLC (2017) 13 Cal.App.5th 1152, 1160.)

Defendant asserts that the parties entered into a pre-dispute arbitration agreement on March 20, 2019 and September 29, 2019. In support of this assertion, Defendant presents the declaration of Alexander Perez (“Perez”) the managing member and CEO of Defendant. (Perez Decl. ¶ 2.) As manager and CEO, Perez is familiar with and assisted in creating Defendant’s record keeping and onboarding processes for new employees. (Perez Decl. ¶ 3.) When Plaintiffs were hired by Defendant, they were provided an Arbitration Agreement, a Confidentiality Agreement, W-4, an Employment Application, and a Tax Withholding Form. (Perez Decl. ¶ 4.)

Plaintiff Rojas was provided the forms on September 18, 2019 and told that she could fill out the forms and return them to Defendant later. (Perez Decl. ¶ 5.) Rojas returned the job application, W-4 and Tax Withholding forms the same day but took the rest of the forms home and returned them signed on September 29, 2019. (Perez Decl. ¶ 5.) Plaintiff Rojas was specifically told that the arbitration agreement was not a condition of employment and was instructed if she had any questions or concerns, she could ask Perez or the office staff. (Perez Decl. ¶ 6.) Rojas did not inform Defendant that she could not read any of the documents. Nor did Rojas ask any questions about the documents. (Perez Decl. ¶ 7.)

Plaintiff Escobedo “was similarly given the opportunity to review the documents and was told that the signing of the documents was not a condition of employment. She did not ask any questions or object to the document.” (Perez Decl. ¶ 8.)

"I and the Employer agree that if we are unable to first resolve the claims through mediation with a neutral mediator, we agree to utilize binding arbitration as the exclusive means to resolve all disputes that may arise out of or be related to my employment, including but not limited to the termination of my employment and my compensation. I and the Employer specifically waive our respective rights to bring a claim against the other in a court of law, and this waiver shall be equally binding on any person who represents me or the Employer in a lawsuit against the other. Both I and the Employer agree that any claim, dispute, and/or controversy that I may have against the Employer (or its owners, directors, officers, managers, employees or agents) or the Employer may have against me, shall be submitted to and determined by binding arbitration under the Federal Arbitration Act (FAA), in conformity with the procedures of the California Arbitration Act (Cal. Code Civ. Proc. sec 1280 et seq. Included within the scope of this Agreement are all disputes, whether based on tort, contract, statute(including, but not limited to, any claims of discrimination, harassment, and/or retaliation, whether they be based on the California Fair Employment and Housing Act, Title VII of the Civil Rights Act of 1964, as amended, or any other state or federal law or regulation), equitable law or otherwise. . . . By this binding arbitration provision, I acknowledge and agree that the Employer, and I give up our respective rights to trial by jury of any claim I or the Employer may have against the other.

3. All claims brought under this binding arbitration agreement shall be brought in the individual capacity of myself or Employer. This binding arbitration agreement shall not be construed to allow the consolidation or joinder of other claims involving other employees or permit such claims to proceed as a class action, collective action, private attorney general action or any similar representative action. No arbitrator shall have the authority under this agreement to order any such class or representative action. By signing this agreement, I am agreeing to waive any rights that I may have to bring an action on a class, collective, private attorney general, representative or other similar basis. Accordingly, I agree to waive any right I may have to bring an action on a class, collective, private attorney general, representative or other similar basis.

7. 1f any term or provision, or portion of this Agreement is declared void or unenforceable it shall be severed and the remainder of this Agreement shall be enforceable.

(Perez Decl. ¶¶ 9-10, Exhs. A-B.) Both agreements appear to be signed by Plaintiffs. (Perez Decl. ¶¶ 9-10, Exhs. A-B.)

“[D]efendants may meet their initial burden to show an agreement to arbitrate by attaching a copy of the arbitration agreement purportedly bearing the opposing party’s signature.” (Espejo v. Southern California Permanente Medical Group (2016) 246 Cal.App.4th 1047, 1060; see also Bannister v. Marinidence Opco, LLC (2021) 64 Cal.App.5th 541 [“The party seeking arbitration can meet its initial burden by attaching to the petition a copy of the arbitration agreement purporting to bear the respondent's signature.”].) Accordingly, as Defendant has attached arbitration agreements purportedly bearing Plaintiffs’ signatures, Defendant has met its initial burden.

“A party seeking to enforce an arbitration agreement has the burden of showing FAA preemption.” (Lane v. Francis Capital Mgmt. LLC (2014) 224 Cal.App.4th 676, 684.) California law provides that parties may expressly designate that any arbitration proceeding should move forward under the FAA’s procedural provisions rather than under state procedural law.^{^[1]} (Cronus Investments, Inc. v. Concierge Services (2005) 35 Cal. 4th 376, 394). Otherwise, the FAA provides for enforcement of arbitration provisions in any “‘contract evidencing a transaction involving commerce.’ (9 USC § 2.)” (Allied-Bruce Terminix Companies, Inc. v. Dobson (1995) 513 U.S. 265, 277.) Accordingly, “[t]he party asserting the FAA bears the burden to show it applies by presenting evidence establishing the contract with the arbitration provision has a substantial relationship to interstate commerce[.]” (Carbajal v. CWPSC, Inc. (2016) 245 Cal.App.4th 227, 234, [italics added].) Moreover, as noted above, the California contract law applies to the validity of the arbitration agreement. (Winter, supra, 166 Cal.App.4th at p. 947.)

Here, the arbitration agreement specifically invokes the FAA. (Perez Decl. ¶¶ 9-10, Exhs. A-B, [“Both I and the Employer agree that any claim, dispute, and/or controversy that I may have against the Employer (or its owners, directors, officers, managers, employees or agents) or the Employer may have against me, shall be submitted to and determined by binding arbitration under the Federal Arbitration Act (‘FAA’), in conformity with the procedures of the California Arbitration Act (Cal. Code Civ. Proc. sec 2230 et seq.”].) Accordingly, the FAA applies and will preempt California law if in conflict.

Included within the scope of this Agreement are all disputes, whether based on tort, contract, statute(including, but not limited to, any claims of discrimination, harassment, and/or retaliation, whether they be based on the California Fair Employment and Housing Act, Title Vll of the Civil Rights Act of 1964, as amended, or any other state or federal law or regulation), equitable law or otherwise. The only exception to the requirement of binding arbitration shall be for claims arising under the National Labor Relations Act that are brought before the National Labor Relations Board, claims for medical and disability benefits under the California Workers' Compensation Act, Employment Development Department claims or as may otherwise be required by state or federal law.

The scope of the arbitration agreement is very broad and includes claims for wages and penalties arising out of Plaintiffs’ employment with Defendant. In Viking River Cruises, Inc. v. Moriana, the Supreme Court held that “the FAA preempts the rule of Iskanian insofar as it precludes division of PAGA actions into individual and non-individual claims through an agreement to arbitrate.” (Viking River Cruises, Inc. v. Moriana (June 15, 2022) 142 S.Ct. 1906, 1924.) In Viking River, the parties’ agreement included a waiver of “ ‘representative’ PAGA claims” and a “severability clause” providing “that if the waiver provision is invalid in some respect, any ‘portion’ of the waiver that remains valid must still be ‘enforced in arbitration.’ ” (Id. at pp. 1924-1925.) The employer was therefore “entitled to enforce the agreement insofar as it mandated arbitration of [the employee’s] individual PAGA claim.” (Id. at p. 1925.)

Here, the sole cause of action in Plaintiffs’ complaint is for civil penalties under PAGA. As in Viking River (142 S.Ct. at p. 1911), the parties’ agreement includes provisions waiving the right to bring a representative PAGA action and a severability clause. (Perez Decl. ¶¶ 9-10, Exhs. A-B.) Defendant is therefore entitled to enforce the agreement as to Plaintiffs’ individual PAGA

“Once such a document is presented to the court, the burden shifts to the party opposing the motion to compel, who may present any challenges to the enforcement of the agreement and evidence in support of those challenges.” (Baker v. Italian Maple Holdings, LLC (2017) 13 Cal.App.5th 1152, 1160.)

In opposition, Plaintiffs do not contend that the agreement is unenforceable but rather that the motion should be denied as premature.

Plaintiffs contend that the instant motion is premature because the arbitration agreement requires mediation as a precondition to arbitration. The arbitration agreements provide in relevant part that “I and the Employer agree that if we are unable to first resolve the claims through mediation with a neutral mediator, we agree to utilize binding arbitration as the exclusive means to resolve all disputes that may arise out of or be related to my employment, including but not limited to the termination of my employment and my compensation.” (Perez Decl. ¶¶ 9-10, Exhs. A-B, [Italics Added].) Thus, the agreement does appear to require mediation as a precondition to arbitrate.

There is some non-binding authority indicating that a court may refuse to enforce an arbitration agreement when a precondition to mediate before arbitration has not been fulfilled. The First and Eleventh Circuits have refused to compel arbitration when the party requesting arbitration failed to request mediation, when mediation was a condition precedent to arbitration. (See HIM Portland LLC v. DeVito Builders, Inc. (1st Cir. 2003) 317 F.3d 41, 44 [refusing to compel arbitration because “[u]nder the plain language of the contract, the arbitration provision of the agreement is not triggered until one of the parties requests mediation”]; Kemiron Atlantic, Inc. v. Aguakem Internat. Inc. (11th Cir. 2002) 290 F.3d 1287, 1291 [same].) However, the reasoning of the First and Eleventh Circuits is contrary to the repeated holdings of the U.S. Supreme Court.

“As the Supreme Court has recently re-affirmed, however, arbitrators—not courts—must decide whether a condition precedent to arbitrability has been fulfilled.” (Chorley Enterprises, Inc. v. Dickey's Barbecue Restaurants, Inc. (4th Cir. 2015) 807 F.3d 553, 565; BG Group, PLC v. Republic of Argentina (2014) 572 U.S. 25, 34 [“courts presume that the parties intend arbitrators, not courts, to decide disputes about the meaning and application of particular procedural preconditions for the use of arbitration.”]; Howsam v. Dean Witter Reynolds, Inc. (2002) 537 U.S. 79, 84 [“the presumption is that the arbitrator should decide ‘allegation[s] of waiver, delay, or a like defense to arbitrability.’”]; John Wiley & Sons, Inc. v. Livingston (1964) 376 U.S. 543, 557 [“whether grievance procedures or some part of them apply to a particular dispute, whether such procedures have been followed or excused, or whether the unexcused failure to follow them avoids the duty to arbitrate cannot ordinarily be answered without consideration of the merits of the dispute which is presented for arbitration. … Once it is determined, as we have, that the parties are obligated to submit the subject matter of a dispute to arbitration, ‘procedural’ questions which grow out of the dispute and bear on its final disposition should be left to the arbitrator.”].)

Accordingly, the Court concludes that whether mediation was a condition precedent to arbitration is an issue to be decided by the arbitrator, and not the instant court.

Accordingly, the Court grants Defendants’ motion to compel arbitration of Plaintiffs’ individual PAGA claims.

Defendant contends that pursuant to Viking River Cruises, the Court must strike Plaintiffs’ representative PAGA claim upon granting Defendant’s motion to compel arbitration of Plaintiffs’ individual PAGA claims. The Court disagrees.

In section IV of the majority opinion in Viking River Cruises, Justice Alito states in dicta that:

PAGA provides no mechanism to enable a court to adjudicate non-individual PAGA claims once an individual claim has been committed to a separate proceeding. Under PAGA's standing requirement, a plaintiff can maintain non-individual PAGA claims in an action only by virtue of also maintaining an individual claim in that action. See Cal. Lab. Code Ann. §§ 2699(a), (c). When an employee's own dispute is pared away from a PAGA action, the employee is no different from a member of the general public, and PAGA does not allow such persons to maintain suit. See Kim, 9 Cal.5th at 90, (“PAGA's standing requirement was meant to be a departure from the ‘general public’ ... standing originally allowed” under other California statutes). As a result, Moriana lacks statutory standing to continue to maintain her non-individual claims in court, and the correct course is to dismiss her remaining claims.

The Court concludes that the FAA poses no bar to the adjudication of respondent Angie Moriana's “non-individual” PAGA claims, but that PAGA itself “provides no mechanism to enable a court to adjudicate non-individual PAGA claims once an individual claim has been committed to a separate proceeding.” Ante, at 1925. Thus, the Court reasons, based on available guidance from California courts, that Moriana lacks “statutory standing” under PAGA to litigate her “non-individual” claims separately in state court. Ibid. Of course, if this Court's understanding of state law is wrong, California courts, in an appropriate case, will have the last word. Alternatively, if this Court's understanding is right, the California Legislature is free to modify the scope of statutory standing under PAGA within state and federal constitutional limits. With this understanding, I join the Court's opinion.

(Viking River Cruises, Inc. v. Moriana (2022) 142 S.Ct. 1906, [Justice Sotomayor’s Concurrence].)

In a similar vein, Justice Barrett concurred in the judgment, agreeing that reversal was required because PAGA’s procedure “is akin to other aggregation devices that cannot be imposed on a party to an arbitration agreement.” (Viking, supra, 142 S.Ct. at p. 1926 (conc. opn. of Barrett, J.).) However, Justice Barrett’s concurring opinion, joined by Justice Kavanaugh and Chief Justice Roberts, expressly declined to join in the majority opinion’s further holding that Moriana lacked statutory standing to continue to maintain her non-individual claims. (Viking, supra, 142 S.Ct. at p. 1926 (conc. opn. of Barrett, J. [“[t]he discussion in Parts II and IV of the Court’s opinion is unnecessary to the result, and much of it addresses disputed state-law questions as well as arguments not pressed or passed upon in this case.”]).)

In sum, the Court concludes that even after Viking, whether a plaintiff has the standing to maintain her non-individual PAGA claims in court once her individual PAGA claims are compelled to arbitration remains a question for California courts to decide.[2] However, California seemingly answered that question in Kim.

In Kim, “plaintiff Justin Kim settled his own Labor Code claims against defendant …,” and the “question [was] whether he retain[ed] standing to prosecute a representative PAGA claim.” (Kim, supra, 9 Cal.5th at p. 82.)

The California Supreme Court held that a plaintiff retains standing to pursue representative PAGA claims even after their individual claims are settled. (Kim, supra, 9 Cal.5th at p. 80 [“This case presents an issue of first impression: Do employees lose standing to pursue a claim under the Labor Code Private Attorneys General Act of 2004 (PAGA; Lab. Code, § 2698 et seq.) [footnote omitted] if they settle and dismiss their individual claims for Labor Code violations? We conclude the answer is no. Settlement of individual claims does not strip an aggrieved employee of standing, as the state’s authorized representative, to pursue PAGA remedies”].)

In so holding, our state high court explained: “Although representative in nature, a PAGA claim is not simply a collection of individual claims for relief, and so is different from a class action. The latter is a procedural device for aggregating claims ‘when the parties are numerous, and it is impracticable to bring them all before the court.’ (Code Civ. Proc., § 382.) In a class action, the ‘representative plaintiff still possesses only a single claim for relief—the plaintiff's own.’ [Citation.] If a representative plaintiff voluntarily settles her claim, she no longer has an interest in the class action and may lose the ability to represent the class.” (Kim, supra, 9 Cal.5th at pp. 86-87 [emphasis added].)

“‘But a representative action under PAGA is not a class action.’ [Citation.] There is no individual component to a PAGA action because ‘“every PAGA action . . . is a representative action on behalf of the state.”’ ([Iskanian, supra, 59 Cal.4th at p. 387].) Plaintiffs may bring a PAGA claim only as the state’s designated proxy, suing on behalf of all affected employees.” (Id. at p. 87 [italics in original].)

Here, Plaintiff could have brought her PAGA claim “only” as the state’s designated proxy. Applying Kim’s interpretation of PAGA standing to the instant case, the Court finds that Plaintiff does not lose standing to maintain her representative (non-individual) PAGA claim in court even though the Court compels her individual PAGA claim to arbitration. Moreover, under both the California Arbitration Act (CAA) and FAA, the court may stay the entire action, including trial of nonarbitrable issues, pending the outcome of the arbitration proceeding. (McIsaac v. Foremost Ins. Co. Grand Rapids, Michigan (2021) 64 Cal.App.5th 418, 424 [CAA]; CCP § 1281.4; 9 U.S.C. § 3 [where there is “any issue referable to arbitration,” courts must “stay the trial of the action until such arbitration has been had”].) The court shall therefore stay the remainder of the action.

Accordingly, the Court declines to dismiss Plaintiff’s representative PAGA claim at this juncture. However, this denial to strike the remaining representative claims is without prejudice for Defendant to bring a noticed motion upon the California’s Supreme Court’s ruling Adolph v. Uber Technologies, Inc. which is currently pending.

Based on the foregoing, Defendant Lab 3 LLC’s motion to compel arbitration is GRANTED as to Plaintiffs Violeta Rojas’ and Brenda Escobedo’s individual PAGA claims. Plaintiffs’ individual PAGA claims are to be heard in arbitration.

The remainder of the case (including Plaintiffs Violeta Rojas’ and Brenda Escobedo’s representative PAGA claims) is stayed in its entirety for all purposes pending arbitration pursuant to Code of Civil Procedure section 1281.4. A status conference regarding the progress of arbitration and the stay is set for January 12, 2023 at 8:30 am.

[1] “But the parties may ‘expressly designate that any arbitration proceeding [may] move forward under the FAA's procedural provisions rather than under state procedural law.’ [Citation.] Absent such an express designation, however, the FAA’s procedural provisions do not apply in state court.” (Valencia v. Smyth (2010) 185 Cal.App.4th 153, 174; see also Rodriguez v. American Technologies, Inc. (2006) 136 Cal.App.4th 1110, 1122.)

[2] The assumption in Viking River that plaintiff’s representative claims should be dismissed is not binding on this Court. As Justices Sotomayor and Barrett strongly implied in their concurrences, these are matters of state law, on which state courts will have the last word. (Cf. Meredith v. City of Winter Haven (1943) 320 U.S. 228, 237–238 [“[e]ven though our decisions could not finally settle the questions of state law involved, they did adjudicate the rights of the parties with the aid of such light as was afforded by the materials for decision at hand, and in accordance with the applicable principles for determining state law’] [italics added].)

County of Los Angeles

Department 26